The case for national digital currencies

With the craze surrounding Bitcoin, many are concerned that the crypotcurrency’s price is over valued and a result of too much hype. However, Blockchain, the technology behind Bitcoin, is captivating the attention of many and is widely regarded as the future of technology. So much so in fact, many countries have already launched or begun looking into the possibility of creating their own Blockchain based, state sponsored cryptocurrencies.

In countries where the shift has been towards a more cashless society, the opportunities are evident. One example is Sweden, where banknotes in circulation have fallen to their lowest level in three decades. According to Riksbank, Sweden’s central bank, cash transactions made up only 15% of all retail transactions in 2016, down from 40% in 2010. This has lead Riksbank to discuss the possibility of creating a digital currency, the eKrona and take a serious look into the opportunities presented by Blockhain technology. All of which implies that a central bank backed cryptocurrency in Sweden, is a real possibility. However, the deputy governor at Riksbank, in an interview with the Financial Times, suggested that the implementation would still require time and research, “This is as revolutionary as the paper note 300 years ago. What does it mean for monetary policy and financial stability? How do we design this: a rechargeable card, an app or another way?”

For some countries the possibility of a state sponsored digital currency is already a reality. According to CNBC, the first country to release such a currency was Ecuador in 2015. However, Ecuador's Sistema de Dinero Electrónico is substantially different to Bitcoin, as it is tied directly to the local currency, the dollar, does not use Blockhain technology and is controlled entirely by the government. In fact, the project can be compared more to M-Pesa or Venmo, both of which are mobile phone-based money transfer services. Unlike M-Pesa or Venmon however, Ecuador’s system does not require Internet access or an account with a financial institution; it can also be redeemed for physical money at any point.

Other countries have chosen to follow Bitcoin’s Blockhain based technology in an effort to improve financial inclusion, countries such as Tunisia, which decided to improve its eDinar digital currency in 2015 by using Blockchain. The use of Blockchain was made possible with the help of universal contracting platform, Monetas, which will enable the eDinar Blockchain to be used for money transfers, paying for goods and services like bills, or the management of official government identification documents.

In early 2017, Senegal announced it would be following Tunisia’s lead by launching it’s own Blockchain based national digital currency. The currency will hold the same value as the country’s existing currency, the CFA Franc. According to a statement by the BRM and eCurrency Mint, it will be storable on all mobile money and e-money wallets, as well as providing more transparency to a region which is notorious for it’s high corruption levels.

Another country, which has positioned itself as one of the most technology friendly places in the world, is Estonia. Being one of the first countries to store its government data on the Blockchain as part of its e-Residency programme, it is unsurprising to hear that the small Eastern European nation is looking to launch its own Blockchain based cryptocurrency, ‘Estcoin’. According to the managing director at e-Residency Estonia, “no other country has come close to developing both the technology and the legal frameworks that would enable them to introduce and securely manage tradable cypto-assets globally”. The project also has the promising support of Ethereum founder Vitalik Buterin, further emphasising Estcoin’s potential.

In addition to the countries mentioned, others such as China, Japan, Russia, India, Kazakhstan and Venezuela, to name a few, are considering, or are in the process of developing, their own state backed digital currencies.

The future of cryptocurrencies is therefore no longer limited to the likes of Bitcoin and if countries are successful in their implementation of such currencies, the implications for Bitcoin and others could be significant.